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Cryptocurrency Shouldn't Be Stigmatized As A Tool For Criminal Activity: A Case For Indian Policy Reform

Contrary to common belief, blockchain technology does not impede investigation due to its intrinsic transparency. On the contrary, market research suggests otherwise. Chainalysis reports from 2021 and 2022 indicate a decreasing trend in criminal activity in cryptocurrency transactions, even as total transaction volumes are on the rise.

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Suraj Sharma, Head of Public Policy & Govt Affairs, BNS & Onramp.money
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One of the most prevailing misconceptions about digital assets, like cryptocurrencies, held by policymakers is that they are primarily used for unlawful purposes. Assertions of their usage by corrupt businessmen, international criminals, and oppressive regimes are frequent and often used to justify strict regulation. It's undeniable that digital currencies can be misused, but this is equally true for any transaction medium. The fact that globally recognized financial institutions, including those managing retirement funds for numerous individuals, are increasingly investing in cryptocurrencies should provoke a reevaluation of these apprehensions. Rather than resorting to obsolete arguments, Indian lawmakers must acknowledge the potential cryptocurrency holds and the advancements it brings along.

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The 2023 Crypto Crime Report from Chainalysis disclosed that around $20 billion of crypto was involved in illegal activities, which of course cannot be overlooked. Nevertheless, context is crucial, and as per the United Nations Drug and Crime Report (UNODC), about 3-5% of total GDP, which accounts for up to 4 trillion USD, was laundered. This comparison provides a needed perspective. In addition, the research from the University of Massachusetts suggests that 90% of all dollar bills carry traces of cocaine, a problem from which digital currencies are exempt.

Despite the expansion of bitcoin and other cryptocurrencies, their collective value is overshadowed by the global market for Indian rupees. Regardless of the measure, criminal activity involving crypto is a mere droplet in the vast ocean of daily rupee transactions.

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Addressing key concerns of policymakers from around the globe, who cast cryptocurrencies as a hotbed for criminals and malicious activity.

Inefficient For Large Scale Criminal Operations

Contrary to the notion that cryptocurrencies are the go-to tool for big-time criminals and countries looking to bypass sanctions, some officials have provided counter-arguments of otherwise. It would actually be challenging for an economy or large organizations to use cryptocurrencies to evade sanctions due to the traceability of large transactions on the blockchain.

The National Terrorist Risk Financing Assessment (NTFRA) 2023 confirmed that while digital currencies were being used by criminals and terror groups, their usage was minimal compared to traditional financial instruments. The report highlighted that the preferred choice for illicit financing remains traditional currencies, including the Indian rupee.

Cryptocurrency Transparency Aids Law Enforcement

Contrary to common belief, blockchain technology does not impede investigation due to its intrinsic transparency. On the contrary, market research suggests otherwise. Chainalysis reports from 2021 and 2022 indicate a decreasing trend in criminal activity in cryptocurrency transactions, even as total transaction volumes are on the rise.

Cryptocurrency exchanges are frequently criticized for a lack of transparency around their operations, customer locations, and funding sources. However, Binance, the world's largest

cryptocurrency exchange, responded to nearly 50,000 data requests from law enforcement in 2022, far more quickly than traditional banks. The same is the case for its counterparts in India, where the Indian crypto exchanges responded to a lot of queries received by national and state level law enforcement agencies (LEAs).

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Money Needs To Progress

Money, although a multifaceted concept, essentially serves as an agreed-upon medium for transactions. Almost every other sector has been revolutionized through digitalization and automation, yet the financial world, specifically the currency sphere, has been slow to fully adapt to these sweeping changes. The practice of minting coins and printing notes carries a significant cost, not just financially but also environmentally. In fact, in the financial year 2021-22, India spent a staggering ₹4,984.8 crore on money printing. Transitioning to CBDCs could curtail this expenditure drastically, freeing up funds for other developmental activities.

Additionally, a digital currency, apart from being cost-effective, has several other benefits over physical money. Unlike paper currency, digital currency is durable and cannot be destroyed due to rough use. Also, unlike physical money, which can be hoarded or stashed away without leaving a trace, transactions made through digital currencies, due to their underlying blockchain technology, are traceable, immutable, and can be tracked in mere minutes. These features can significantly aid law enforcement agencies in their investigations and help deter criminal activities.

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Cryptocurrencies strike a unique balance, offering privacy to consumers for their personal transactions while providing transparency for regulatory and law enforcement agencies. In an era where the debate between privacy and transparency is intensifying, cryptocurrencies offer a solution that could potentially reconcile these two seemingly contrasting needs.

It's time for us to embrace this evolving technology rather than resist it, and rethink our outdated perceptions. Cryptocurrencies and blockchain technology have the potential to revolutionize our financial systems, making them more efficient, inclusive, and transparent. Let's welcome this change rather than fear it.

Authored by – Suraj Sharma, Head of Public Policy & Govt Affairs, BNS & Onramp.money

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